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February 12, 2012

Greek Bailout Deal, With More Austerity, Poised to Pass Parliament Amid Riots

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Amid general strikes and riots in Athens, the Greek Parliament has a late-night vote on new austerity measures that are seen in European capitals as a prerequisite to the release of bailout funds for Greece.

Expectations are high that Parliament will accept the bailout deal, which includes a number of additional austerity programs. The vote has been scheduled for midnight local time, which shows you how proud the politicians are about it.

The country has been under a 40-hour national strike as citizens rage against the prospect of more austerity, including the firing of 15,000 more public employees and a 22% cut to the minimum wage. At least ten building had been set on fire in Athens, and over 100,000 protested in front of the Parliament building.

But this appears to be for naught.

“We are a breath away from ground zero,” Mr. (Greek Prime Minister Lucas) Papademos said in a televised address to the nation ahead of a crucial parliamentary vote on a new debt deal scheduled for Sunday night.

The austerity program — which foresees cuts to private sector wages and private sector layoffs — is tough but will “restore the fiscal stability and global competitiveness of the economy, which will return to growth, probably in the second half of 2013,” Mr. Papademos said, adding that the deal would safeguard the country’s future in the euro zone and encourage skeptical investors to return to Greece [...]

Mr. Papademos said that those who argued that bankruptcy would be preferable to more austerity were “woefully mistaken.”

“A disorderly default would throw the country into a disastrous ordeal,” he said. “It would create conditions of uncontrollable economic chaos and a social explosion.”

I’m curious what record unemployment and poverty, bonfires and 100,000 protesters in front of Parliament is, then, if not uncontrollable economic chaos and a social explosion. And Papademos added, strangely, that the deal would allow Greece to return to economic growth in late 2013. I don’t know where this claim was pulled from. Austerity has only brought a deeper recession – and a higher debt-to-GDP ratio – thus far.

About 20 members of the coalition of parties – which control 236 of the 300 seats in Parliament – said they would not agree to the deal. But this leaves a healthy cushion for success. Three members of the Socialists resigned from their party after the bailout terms were announced.

European finance ministers would not agree to bailout terms until Greece passed them first in the Parliament, as they have run out of patience with the Greek’s ability to abide by prior deals. The deal would pave the way for a work-out with Greece’s creditors that would include a nearly 70% haircut on existing debt. European leaders hope this will be seen as a “voluntary” reduction and not a default event that would trigger credit default swaps, but leading rating agencies have already said they won’t see it that way.

UPDATE: The Greek Parliament has now passed the deal.


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